The American Rescue Plan has significant new ACA subsidies in the form of a new table:
|“In the case of household income (expressed as a percent of poverty line) within the following income tier:||The initial premium percentage is—||The final premium percentage is—|
|Up to 150.0 percent||0.0||0.0|
|150.0 percent up to 200.0 percent||0.0||2.0|
|200.0 percent up to 250.0 percent||2.0||4.0|
|250.0 percent up to 300.0 percent||4.0||6.0|
|300.0 percent up to 400.0 percent||6.0||8.5|
|400.0 percent and higher||8.5||8.5”.|
The current table for subsidies has notably higher percentage of income a household must pay before subsidies kick in for the benchmark plan. The ARP is likely to be signed into law this week. Implementation will then start.
Implementation may be a little chaotic as this is a massive mid-year switch. It is a “simple**” change as it is not restructuring actuarial value nor creating floating accumulators nor block-granting funds to the state as a function of estimated spend or anything else like that. It is changing a lot of parameter values and then testing all systems to make sure those changes don’t make other things go boom.
So how does implementation work from a buyer’s perspective?
These subsidies are retroactive. This means that we know a lot of people will have paid more in premiums than they now should have as they were paying premiums under the old subsidy table. The exchanges will effectively treat these folks as if they had a massive drop in income and their subsidies were redetermined. This is an established pathway to true up subsidies over the course of a year.
Let’s walk through an example where all numbers are invented for teaching purposes only. Let’s say someone is currently paying $90/month for their policy that they bought in December and started in January. Let us also assume that the new subsidy table means that policy is now supposed to be $30 a month. They have paid three months of higher than needed premiums. The exchange will try to true them up in the remaining nine months of the year. There is $180 dollars in excess payments to true up. The exchanges will create a $20 credit per month so instead of paying $30/month as the “true” post-ARP premium, they will see a $10/month premium for the rest of the year and then a $30 premium if they auto-renew into the same plan and all else is held equal.
New buyers should (shortly) see the right post-ARP subsidy schedule. There is unlikely to be a lot of weirdness. If there is weirdness on an isolated scale, the income change re-allocation of excess premiums going forward is a plausible pathway to fixing things.
In cases where the new subsidy table brings people into net zero premiums with surplus excess premium paid, I’m not sure how that will work. The fail safe will be the traditional reconciliation process as I discussed with the Washington Post last night:
Ultimately, however, any missteps in properly calculating someone’s subsidy should be rectified when they file taxes next year, Anderson said. That’s because the Internal Revenue Service is required to reconcile the marketplace subsidies people received with what they’re eligible for.
Implementation on the fly could be a little messy and mostly smooth (or vice versa). The IRS reconciliation process is the fail safe method to true people up.
So what does this mean for buyers?
I would say that if you need coverage to start April 1st, go buy coverage now and don’t worry about reconciling subsidies between the two regimes as that should catch up to you relatively quickly.
** Word to the wise — if you know a claims system or Exchange plumber, do not utter the word “simple” nor impede progress to the coffee pot this spring — it is best for everyone’s health.
So I should tell my ex-wife (who is on Obamacare) and tell her to take a look at the exchanges again? Hopefully she can find a cheaper plan than what she has now.
ETA – yes first!!!
@cain: Tell her next week
Thanks for entire new post to answer my question, not expected, but appreciated.
Will people with existing plans need to log on to their exchange and do something to get their subsidy adjusted, or will the adjustments happen automatically?
@Julie: I am assuming the adjustments will happen automatically. They may or many not happen in time for the April premiums but should be in place for May.
And it is bonkers complicated to get right. The form* asks the taxpayer to calculate a subsidy formula just to start the reconciliation process. Then they’re required to research outside information to get their Second Low Cost Silver** Plan, do some math to add everything up, then finally figure out if they get either the Premium Tax Credit (a bump on their refund) or if they had the tax credit overpaid and they’re required to return it. So the IRS is required to reclaim it. If I had my way there would be a better formula for calculating all these things at purchase point rather than at the end of the tax year. This is not the system we live in however.
* The current form 8962 still has the cutoff at 400 for the subsidies. Once this passes the IRS is going to have to change a form in the middle of filling season AND take on a bunch of 1040X forms when all is said and done. I love unfunded mandates…
** I’m typing this on my phone and my phone keeps pushing Silverman on me when I try to type silver. HOW COULD THAT HAVE HAPPENED I WONDER…
I’d be grateful to pay less than $1,800.00 per month for our bronze Kaiser plan that spouse and I are on. I couldn’t afford the $2,500+ to stay on my employer’s group plan when I retired in September. I’ll be keeping an eye open for instructions to recalibrate for subsidies in the coming weeks/months.
@laura: Look at things no earlier than middle of next week
@Yutsano: I could be misunderstanding, but I don’t think there would be any need to change forms in the middle of tax season, unless these changes to subsidies are retroactive to the 2020 plan year. If they’re just retroactive to January 2021, then no new forms will be needed until *next* tax season
And I agree, it would be nice if this stuff could be calculated at point of purchase. Unfortunately, because lots of ACA subscribers’ incomes are not known until the end of the year, and can vary considerably, there will always be some reconciliation process, with a calculation being needed to determine the subsidy people were actually eligible to receive. They could start, though, by printing the second lowest cost silver’s price on the tax form that the Marketplace/state exchange makes available.
One thing that seems to be getting very little attention is Section 9662 of the American Rescue Plan…
What does this mean in laymen’s terms? It means that if you underestimated your projected 2020 income when you applied for ACA subsidies in late 2019, you will not be penalized when you reconconcile your taxes for 2020. So, if for instance you estimated your income for 2020 would be $28,000, you would have been given a monthly subsidy (officially called an advanced premium credit) commensurate with that income to offset the cost of your monthly premium. But let’s say you actually made $34,000 last year for whatever reason. Normally, when you file your taxes, you would be required to pay back the extra subsidy you were given based on the discrepancy between the lower estimate you gave for your expected income and your actual income (the clawback amounts have caps, depending on what percentage of FPL your income is). That won’t apply this year. For me personally, this is going to save me close to $1,000 on my taxes this year, because my AGI wound up being a few thousand dollars more than I expected it to be when I applied for a 2020 ACA plan in 2019.
@ProfDamatu: The changes in subsidies aren’t retroactive to 2020, but there is a section in the ARP which will forgive people of any subsidy clawback they would have been required to pay on their 2020 return because they underestimated their expected income when they applied for ACA subsidies.
@janesays: That’s a very helpful provision! I apologize for being unclear; I was simply saying that I didn’t think that people who already filed would have to re-file using new forms, simply because the recalculation using the new subsidy levels is for this calendar year, not last year. I think that this provision is saying that if the calculation that people have already done revealed an overpayment of subsidies, the IRS is going to ignore that for this tax season, but I could be wrong; maybe new forms are going to be coming out. Again, sorry for poor writing skills!
@ProfDamatu: You are correct. The new subsidy levels are for 2021 and 2022 only – they are not retoractive to 2020.
Having said that, I would suggest to anybody who was anticipating a subsidy clawback in their 2020 taxes when reconciling their advanced premium credits to hold off on filing until the bill has passed and the IRS has updated forms so you don’t accidentally pay taxes that you might not wind up owing
I really don’t know how this will work with automated tax software – will the forms be updated in time to file by April 15th, or will I need to file for an extension?
Question: What happens if an unexpected increase in AGI during 2021 takes us out of the “extra cost savings” bracket? Do our out of pocket maximum and deductibles on our existing plan increase immediately and automatically? Thanks
@nhs76: If you thought you qualified for CSR silver plan (100-250% FPL) but you had some good luck and earned 300% FPL for 2021; you don’t have any more cost sharing. You will have increased premium that you should see once you update your profile on Healthcare.gov or your state exchange and a final reconciliation to pay back any extra premium next year on your taxes.